Great News! Qualifying For Your FHA Loan Just Got Easier
Mortgage Banker
Richard Blair
Published on July 13, 2021

Great News! Qualifying For Your FHA Loan Just Got Easier

A recent announcement by HUD made it easier for home buyers to qualify for a mortgage with student loan debt. Many first time home buyers struggle with qualifying because of the monthly payment associated with student loan repayment. If you were previously told by a mortgage banker or mortgage banker that your debt ratio was too high to qualify for a mortgage because of student loan debt, then you will want to reach back out to a local mortgage loan originator for your pre-qualification. The reason is that the method of calculating student loan repayment, especially on deferred loans, was changed by HUD.

Verify my mortgage eligibility (May 20th, 2022)

When you meet with a mortgage broker or mortgage banker the lender looks very carefully at your Debt To Income (called DTI) ratio. Simply explained, a DTI is the ratio of all of your monthly obligations (like minimum credit card payments, car loan, installment loans and student loans) divided into your gross monthly income. So, for calculating the DTI the gross income, not your net take home pay is considered.

A recent article in the Wall Street Journal also goes into more detail about the HUD announcement .

https://www.wsj.com/articles/hud-aims-to-boost-homeownership-for-buyers-with-higher-student-debt-11624008602

Verify my mortgage eligibility (May 20th, 2022)

Before the announcement the mortgage lender used up to 1% of your student loan balance to count towards your monthly debt to income under certain circumstances. So, if you had $40,000 in outstanding student loan debt that reported $0 payment and deferred, your monthly debt obligation for this loan was set at $400.00

Under the new announcement, the mortgage lender will use the payment amount reported on the credit report or the actual documented payment, when the payment is being reported above $0 per month; Or 0.50% of the outstanding loan balance, when the the monthly payment reported on the credit report is $0 a month.

In the example provided, the qualifying debt for the same $40,000 student loan would drop from $400 per month to $200 per month!

Verify my mortgage eligibility (May 20th, 2022)

This makes a very big difference in the price of the home you can now afford. Under certain market and interest rate conditions this could mean a price increase of up to $50,000 for home shopping. Have your local mortgage loan originator examine your current situation under the new HUD rule to see how much home you can now afford.

With home prices increasing in 2021, this may be a great time to review your financial situation with a mortgage loan officer to see how your home buying power has increased with the new HUD rule. Ask your mortgage banker or mortgage broker to prepare a custom Home Loan Analysis, then get educated on the new guideline and strategies for student loans so you can make the wisest financial decision.

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Mortgage Banker
Richard Blair Mortgage Banker
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